‘King sugar’ losing crown

Sugar exporting countries in the African, Caribbean and Pacific grouping (ACP), including Trinidad and Tobago, were dealt a major blow last month when Brazil, Australia and Thailand requested a panel under the World Trade Organisation’s (WTO) Dispute Resolution Mechanism against the European Union (EU) subsidy sugar regime. The sad reality is that the preferential price that some of the former EU colonies receive for sugar may soon go the way of the removal of banana preferences which devastated many Caribbean economies. Last month’s action took both the ACP and EU countries by surprise particularly as Australia and Brazil at their highest political level repeatedly assured the other parties that they would not take steps in their dispute which would directly or indirectly affect the interest of the sugar-producing states concerned.

The three countries are arguing that European Communities’ direct and indirect subsidies on their sugar export are not consistent with the EC’s WTO export subsidy obligations contracted during the Uruguay Round. In a statement following the request for the WTO panel, the EU said it deeply regrets the decision by the three countries as it runs the risk of undermining preferential ACP sugar exports to Europe. “This challenge is hard to understand. It is nothing less than an attack on the EU’s trade preferences for developing countries. Let us be clear. The claims made by Brazil, Australia and Thailand risk undermining the benefits of the EU regime for many sugar-dependent developing countries, especially ACP countries,” Franz Fischler, EU Agriculture Commissioner said. “And to add insult to injury, they are challenging the commitments which were agreed upon by all WTO members during the Uruguay Round and which are fully respected by the EU.”

EU Trade Commissioner Pascal Lamy felt the WTO action would not only destabilise the sugar-dependent economies of small ACP countries, but is also a smoke screen to hide the real causes of the current depressed world sugar prices.” We will vigorously defend them in the WTO,” he said. Brazil has dramatically increased its sugar exports from 1.6 million tonnes in the early 1990s to over 12 million tonnes in the current year. Sugar cane production has quadrupled since the mid-1970s. The EU said this would not have been possible without massive government support for investments during the establishment of the alcohol industry through the “pro-alcohol programme” worth more than US $4 billion. The structure of the Australian sugar market, which Australia claims is free and non-distorting, is practically closed to imports from other countries, even if its internal prices are at least twice as high as world market prices.

At the same time Australian production and exports have increased substantially since the early 1990s. The imports of sugar to Thailand, whose domestic sugar market is based on domestic, import and export quotas, are essentially nil, while Thailand is one of the biggest sugar exporters in the world. In their response, the ACP most of whom are vulnerable, less developed countries (LDCs), landlocked and small island states and are mostly single commodity producers/ exporters said their concerns have been ignored completely. “The steps now being followed by Australia and Brazil, large multi-commodity producers/exporters, are a further demonstration of the use of legal rules in the context of the WTO to further marginalise the interest of the small and vulnerable economies,” the ACP said in their statement. “It is a blatant attack by the big players on the small and vulnerable motivated by pure mercantilist considerations. This is against both the spirit and the letter of WTO Agreements. Furthermore, the challenge could deny the LDCs the benefits which they could expect from the EU ‘s EBA (Everything But Arms) initiative.”

It said its pleas that the challenge if successful would directly affect the lives of hundreds of thousands of poor farmers and will lead to the destruction of their livelihood, have fallen on deaf ears. The EU is currently the largest importer of sugar among WTO members with around 1.9 million tonnes imported in 2001 of which about 1.7 million is imported from developing countries at zero or very low tariff. These imports are the main reason why the EU has to re-export part of its own sugar and ACP sugar. The mechanisms for ensuring this preferential treatment were negotiated and agreed by the WTO during the Uruguay Round, the EU argues. Most of ACP imported sugar is raw sugar which is refined in the EU and re-exported as white sugar. With its Everything but Arms initiative the EU is phasing in duty and quota free market access for sugar from the 49 poorest countries in the world. The quantities of sugar sold to the EU are gradually increasing, allowing the least developed countries to take more and more benefit from this preferential access.

With the Caribbean Community (CARICOM) consuming more sugar, intra-Regional Trade is projected at 120,000 tonnes in 2003 compared with 74,000 tonnes the previous year. President of the Caribbean Development Bank (CDB) Professor Compton Bourne said any dismantling of the EU sugar protocol would mean full exposure of CARICOM producers to a low-cost major exporter like Brazil. Stating that there must also be scales of economies, Professor Bourne said small states cannot entirely ignore the need for enterprises of production size sufficient for international cost-competitiveness. He said in the sugar industry, production costs in CARICOM producing countries exceed internationally competitive prices by a factor of 3.5 in Trinidad and Tobago, 2.5 in Jamaica, 2.4 in Barbados and St. Kitts and Nevis, and 1.3 in Guyana. Only Belize matches the internationally competitive price. “It is therefore necessary to consider consolidation and restructuring of the sugar industry in an effort to create viable sized national industries or a regional industry,” he said. With the challenges facing regional sugar producers including depressed world prices, Bourne’s suggestions should be acted upon with great urgency.